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Get Your Uncle To Pay for Your Capital Improvements

It's nice to have a very rich uncle.

After all the R&D work is finished and the clinical trials have been completed, the most expensive part of running a drug company is the capital expenditures for production plants. It just got a little cheaper for MedImmune (NASDAQ:MEDI) and Sanofi-Aventis (NYSE:SNY), who announced yesterday that they had convinced the U.S. government to pick up a majority of the tabs to renovate their plants.

MedImmune's five-year, $55.1 million contract from the Department of Health and Human Services will help the company retrofit its manufacturing facilities that produce the needle-free FluMist vaccine. It will contribute $14 million of its own money to the cause. The $77.4 million contract for Sanofi will help it retrofit a Pennsylvania plant that makes vaccines in chicken eggs. Sanofi is chipping in nearly $25 million to complete the project.

Sanofi is French, and MedImmune was recently purchased by the London-based AstraZeneca (NYSE:AZN) in a deal set to close on Monday, so it's nice of my Uncle Sam to be throwing money to companies that aren't even his nephews. At least the money will be spent on plants in the U.S.

Of course, Uncle Sam isn't doing this out of the kindness of his heart. Most of the world's flu vaccine is made in other countries -- Swiss Novartis (NYSE:NVS) and British GlaxoSmithKline (NYSE:GSK) are the other two of the top four producers -- and the U.S. government is worried that those vaccines and the capacity to make more will be nationalized by other governments in the event of a flu pandemic -- avian or just the regular supercharged kind. The contracts also provide money for the companies to keep the plant capable of making flu vaccine year round. Normally, they shut down between flu seasons, so they aren't pure profit for the companies.

There aren't too many industries where you can invest in companies that get free money from the government. For a long time, the defense industry was the only major player for large government contracts. With the threat of bioterroism and pandemics, the government has its pocketbook out to prepare for the worst. It's hard to predict which drug companies will get these lucrative contracts, but, all things being equal, investing in companies with drugs that are useful to the government is a good idea.

Looking for more drug coverage? Grab a free 30-day trial of our Rule Breakers newsletter and take a look at all our recommendations, as well as get access to our message boards and exclusive content. Glaxo is aMotley Fool Income Investor pick.

Fool contributor Brian Orelli, Ph.D., just got a full-time contract to write for The Fool and couldn't be happier. He doesn't own shares of any companies mentioned in this article. You could think of the Fool's disclosure policy as our contract with you, albeit kind of one-sided in your favor.